Adequate preparation for a Puerto Rico residency audit under Act 60 requires more than meeting basic statutory tests.

It involves building a comprehensive, fact-driven record that can withstand scrutiny from both the IRS and Puerto Rico Treasury.

At a minimum, taxpayers should:

• Clearly describe the key facts supporting their relocation
• Develop a detailed timeline of relevant events
• Identify potential witnesses who can corroborate critical aspects of their move

In addition, taxpayers must gather robust documentary evidence demonstrating a legitimate and sustained presence in Puerto Rico. This may include:

• Property deeds or lease agreements
• Bank accounts and financial activity in Puerto Rico
•  Occupational licenses and business registrations
• Driver’s licenses and vehicle registrations
• Relocation of personal belongings
• Business operations and investment activity
• Healthcare providers and insurance coverage
•  Employment relationships
• Voter registration and homestead exemptions
• Utility bills and school enrollments
• Credit card transactions and spending patterns
• Phone records showing consistent Puerto Rico usage
• Memberships in social, cultural, professional, political, or religious organizations

Regulatory Filings and Notification Requirements

Taxpayers must also demonstrate that they properly notified relevant authorities of their relocation.

This includes:

• IRS Form 8898 (Statement for Individuals Moving to Puerto Rico)
• IRS Form 8822 (Change of Address)
• USPS Form 3575 (Mail Forwarding Change of Address Order)

Supporting evidence showing that other institutions such as banks, employers, and service providers were notified is also highly recommended.

Failure to properly document these steps can weaken an otherwise valid residency position.

Income Sourcing and Legal Positioning

Beyond residency, taxpayers must be prepared to substantiate the Puerto Rico source of their income.

This requires:

• Proper application of tax laws and sourcing rules
• Supporting positions with regulations, case law, and IRS guidance
• Ensuring consistency between reporting positions and actual economic activity

Understanding Audit Risk and Procedural Exposure

Preparation must also include an understanding of how audits and disputes unfold.

Taxpayers should be familiar with:

• IRS audit procedures and timelines
• Puerto Rico Treasury (Hacienda) review processes
• Potential theories the IRS may use to extend assessment periods
• Increasing coordination between federal and local authorities

Given evolving enforcement trends, audit exposure is no longer theoretical it is a practical and increasing risk.

Strategic Takeaway: Compliance Is Ongoing, Not One-Time

Residency is not a checkbox   it is a continuous, evidence-based position.

Taxpayers must maintain ongoing consistency across lifestyle, financial activity, and legal reporting.

Do Taxpayers Need Professional Support?

While it is technically possible for taxpayers to manage these requirements independently, doing so carries significant risk.

Prudent taxpayers particularly those who take aggressive residency or sourcing positions, or have substantial tax exposure should engage experienced tax counsel to prepare for potential audits and disputes.

Critical Practical Reminder

Taxpayers must carefully review every IRS or Hacienda notice and strictly comply with all deadlines.

Missing a response deadline can limit the ability to challenge findings, result in automatic assessments or penalties, and significantly weaken the taxpayer’s defense position.